Tax incentives for the relocation and expansion of headquarter functions from major cities to local areas

Japan:Inbound Tax Alert April 2017, No. 21

This newsletter outlines the procedures to apply for these benefits and summarizes the calculation of such benefits related to tax relief for capital investments and job creation, both of which have a significant impact on corporate tax. (Japan:Inbound Tax Alert April 2017, No. 21)

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In Brief

One of the most important political challenges in Japan in recent years is to stop a decrease in the population of local areas and the resulting contraction of local economies. To address these issues, tax incentives for the relocation and expansion of headquarter functions from major cities to local areas were established in the 2015 tax reform and these include: tax relief for capital investments and job creation, and a reduction in local tax rates. A portion of these incentives was expanded in the 2017 tax reform.

This newsletter outlines the procedures to apply for these benefits and summarizes the calculation of such benefits related to tax relief for capital investments and job creation, both of which have a significant impact on corporate tax.

Procedures for Application of Tax Incentives

If a company wishes to apply for these incentives, it first needs to determine whether or not the municipality to which the company is considering to relocate or expand its headquarter functions is designated as an “area of local revitalization ” and has filed a local revitalization plan which has been authorized by the Prime Minister.

Following, the company must file a “plan for the establishment of specified facilities for local revitalization” with the governor of the relevant prefecture in order to receive authorization for the plan. Requirements for such certification are as follows:

The plan is consistent with the local revitalization plan of the relevant prefecture in which the headquarter functions will be relocated or expanded (e.g., the establishment, addition, lease or improvement, or the change of use of headquarter functions).

The number of employees of the headquarter function is expected to increase generally by at least ten (five for Small/Medium sized Enterprises (“SMEs”)), and in the case of relocation, at least half of the employees of these functions are transferred from Tokyo.

It is expected that the plan can be implemented smoothly.

Support teams for these incentives have been established in Tokyo, Nagoya and Osaka and areas covered by these measures are listed on the website (Japanese only), however it is recommended to directly contact the prefecture in which you are considering to relocate or expand for details and the latest information.

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Deloitte Tohmatsu Tax Co. Partner

Deputy Country Tax Leader, Managing Partner,Tokyo Office Certified Public Tax Accountant(Japan), CPA(US) Yang Ho, Business Tax Services Group Leader-Japan, has over 24 years of experience in public ac... More